Market Share is Related to Profits

The start of the process is brand awareness

The Wall Street Journal says it best,“The studies are consistent, clear and unequivocal: Those companies that advertise during a recession have better sales than those companies that don’t.”

The experience of 57 companies shown in the chart at right demonstrates a close relationship between market share and profitability. In the SPI Report “Market Share—a key to profitability” (Harvard Business Review), it was pointed out that: “Under most circumstances, enterprises that have achieved a high share of the markets they serve are considerably more profitable than their smaller share rivals.”

Furthermore, according to the SPI Report, “Brand Awareness as a Tool for Profitability,” “Increased brand awareness creates an improved potential for market share. Higher market share, in turn, creates a better potential for higher return on investment (ROI). The data demonstrated that most businesses succeeded in realizing these potential, once the levels of brand awareness were achieved. The start of the process is brand awareness—without it, both market share and ROI are severely jeopardized.”

The window of opportunity is open right now!

A corollary to this phenomenon is that recessionary times present a better opportunity to improve market share than normal or expansion times. Right now, every ad dollar presents a better investment in market share growth. According to Dr. Valerie Kijewski, “A recessionary market condition can provide an opportunity for an industrial business to break from traditional budget-cutting patterns, and build a greater share of market through aggressive media advertising.”

The chart at left shows how aggressive advertising now can improve the market share that we know leads to higher profits. Note that in expansionary times, because business climate makes it easier for competitors to enter the market, market share often erodes even while sales increase.

Advertising is often put on the books as an expense. As we’ve seen above, that is just wrong. Advertising represents a capital investment in growth. Over the past 25 years we’ve seen small companies become large companies by changing just one thing: their commitment to advertising. We’ve also seen large companies become small companies by changing just one thing: their commitment to advertising. If you have a good product, you can only benefit from advertising and should strive for dominance.